Q3 2023 Visteon Corp Earnings Call
Good morning, My name is Anna and I will be your conference operator today.
At this time I would like to welcome everyone to the Visteon third quarter 2023 earnings call.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one thank you.
Ryan Wentling you may begin your conference.
I'm, Ryan Wentling, Vice President of Investor Relations and Treasurer welcome.
Welcome to our earnings call for the third quarter of 2023.
He's note. This call is being recorded and all lines have been placed on listen only mode to prevent background noise.
Before we begin this morning's call I'd like to remind you. This presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements are not guarantees of future results and conditions, but rather are subject to various factors risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.
Please refer to the page entitled forward looking information for additional details.
Presentation materials for today's call were posted on the investors section of <unk> website. This morning. Please visit investors that visteon dot com to download the material. If you have not already done so.
Joining us today are Sachin <unk>, President and Chief Executive Officer, and Jerome <unk>, Senior Vice President and Chief Financial Officer.
We have scheduled the call for one hour and we'll open the lines for your questions after Sachin and drums remarks.
Please limit your questions to one question and one follow up.
Thank you for joining US now I will turn the call over to Sachin.
Thank you Ryan and good morning, everyone. Thank you for joining our third quarter 2023 earnings call.
H two provides a summary of our results for the third quarter. The company performed very well delivering strong results for the quarter <unk> Our foundation for long term growth.
Third quarter sales were $1 billion and $14 million and excluding the impact from supply chain related pricing our basis grew 9% year over year further demonstrating the strong demand for our digital cockpit products.
Adjusted EBITDA was $128 million or 12, 6% of sales an increase of $33 million when compared to last year driven by strong growth in our underlying business and a few favorable commercial items.
As a result of our strong performance year to date.
Increasing the midpoint of our adjusted EBITDA guidance for the full year.
Adjusted free cash flow was a positive cash inflow of $98 million, bringing our year to date cash flow to $93 million.
The company delivered another quarter of strong product sales growth despite some emerging headwinds in the industry.
In North America, our sales remained solid and the UAW strike had an immaterial impact to our sales as a detroit customers continue to receive products throughout the quarter.
In Europe, the strong order backlog at our customers has normalized due to weaker consumer demand, resulting in vehicle production at other customers coming in lower than we had initially anticipated.
In China vehicle production, excluding exports was lower as well due to weaker consumer demand.
The market shifting more to electric vehicles domestic Oems in China are gaining market share over global car makers, which is resulting in a negative customer mix for visteon in that region.
Despite these headwinds visteon spurt of sales grew in the third quarter due to the ramp up of recently launched products.
We launched another 33, new products in the third quarter, bringing our year to date total to over 100, new products, which will continue to drive our sales in the coming quarters.
Our product and technology portfolio for digitalization and electrification is one of the best in the industry, which is a big driver of our new business win performance.
In the third quarter, we won $1 8 billion of new business, bringing our year to date total to $5 $8 billion.
I'm also happy to report that we won our first customer for our automotive at store product that we highlighted at our Investor day and during CES earlier this year.
This new connected services enable us to offer end to end solutions for car makers, which is unique amongst our peers.
In the third quarter, we continued to deliver on the capital allocation commitment announced during our Investor day, and we repurchased an additional $4 million to $6 million of shares, bringing our total to $76 million through Q3.
I will provide more details on our Q2 performance as well as our near term outlook on the subsequent pages before handing it over to Jerome to discuss the financials.
Turning to page three.
Global vehicle production in the third quarter grew 4% year over year, although visteon customers vehicle production was flat for the quarter.
As we anticipated semiconductor supply has gradually improved throughout the year and in the third quarter. Our open market purchases of chips were down significantly compared to last year.
Excluding the unfavorable year over year impact from supply chain recoveries Visteon space product sales grew 9% year over year in the third quarter, Despite flat vehicle production at our customers.
Resulting in a robust growth over market of 9%.
From a sequential perspective, our base product sales have continued to grow sequentially from Q1 of this year, mainly driven by the ramp up of recently launched products.
Through the first three quarters, our base sales have grown a solid 17% versus the same period last year.
Digitalization is one of the most significant trends in our industry and in Q3, our digital products, including digital clusters Smart core infotainment performed very well.
Digital cluster sales grew more than 20% year over year, continuing the strong performance from prior quarters.
These two clusters noted presented 60% of our total cluster shipments and this share will grow further in the coming quarters.
There is ample runway for future growth for digital clusters, especially in the mass market segment with this trend is just starting to matrix impact.
Displays are growing rapidly and automotive both in size as well as the number of displays Houston cockpits. Despite.
Despite this positive industry backdrop, we are being impacted this year, but the ramp down of a large program with BMW, which is masking. The overall performance of this product line.
We are quickly approaching the end of production of their program. Therefore, it should be less of a headwind going forward.
As new display programs come online expect this product line to return to growth.
Smart core was our fastest growing product in Q3 with sales growing 25% year over year.
Benefited from new launches with Harley Davidson and Volvo and from the ramp up of programs launched earlier, the Chile and mine drop.
This key product line noted presents a mid teen share of our total sales up from the mid single digits, just a few years ago.
We are also seeing rapid growth of our infotainment systems product line, especially Android based infotainment.
Standalone infotainment systems, featuring Android and offering connected services at an attractive proposition for many markets, especially for competitively priced vehicles.
Lastly, our electrification business continued to ramp up in Q3 with the launch of additional electric vehicles by our customers.
While sales of BMS for the first three quarters have done lower than anticipated. We're pleased to see sequential growth in BMS sales, which we expect will continue in the coming quarters.
In summary Vista continues to benefit from their digitalization trend in sales of our digital cockpit products with very robust in Q3.
Turning to page four.
We had another very successful quarter of product launches in the third quarter. The company launched its products in 33 vehicle models, which brings our year to date total to over 100 vehicle models launched with Visteon products across 18 different car manufacturers around the world.
Our third quarter launches reflects the trend of digitalization impacting the industry across all vehicle segments.
About two thirds of our product launches with clusters with the remainder being cockpit domain controllers and displays.
Some of the key third quarter launches are highlighted on the speech.
With Mercedes we launched multiple digital clusters as mid cycle updates to existing models.
On the new EQT electric SUV for the China market.
Our collaboration with <unk> in China continues to grow and in Q3, we launched a smart core cockpit domain controller on the Volvo <unk> 30 electric SUV.
As highlighted last quarter, we continue to make inroads in the tubular market.
Commuter bikes make up the bulk of this market and does vehicles are just beginning their digitalization evolution.
In Q3, we launched a digital cluster with Honda on the Journal plus model. There is offered in Japan and other countries in Southeast Asia.
We anticipate this segment to continue to evolve quickly towards larger displays and connected cockpits in the future.
We had multiple launches with Ford in the quarter with our clustered in audio products, including on the transit light commercial vans in Europe and China.
In Europe, we launched our eight inch hybrid cluster on two variants of the vehicle and the dual display and digital cluster system on China market variance highlighting the exploration of digitalization trend in that market.
We launched our first digital cluster for heavy commercial vehicles with the launch of the 12 inches to cluster that Renault trucks in Europe.
Additional launches are planned with this OEM in the coming quarters.
India is one of the faster growing automotive market this year.
<unk> is gaining momentum with carmakers in that region.
In Q3, we launched a seven inch digital cluster on two models with Tata Motors, including on the next one which is the best selling electric vehicle in the market.
Turning to page five.
Q3 was another quarter of strong new business wins, but $1 $8 billion of business booked in the quarter, bringing our year to date total to $5 $8 billion.
About 40% of our Vince here to date are for electric vehicles, reflecting the growing share of evs in the industry, especially for the back half of the decade.
On the right side of the page, we highlight a few key wins for the third quarter.
First we won a cockpit domain controller platform program with a German luxury OEM. Our first CDC program did this customer this.
This product will launch on all ice and EV vehicles from this car manufacturer starting from 'twenty to 'twenty six onwards, and will integrate digital cluster and connected infotainment features and functions.
This conquest win is visteon largest cockpit domain controller to date.
Since launching our first Android based infotainment system in 2020, we have upgraded our offering with new more powerful silicon and additional features including our all go at store OTI Smart voice assistant and camera based features such as surround view.
We believe we have the most advanced infotainment system in the industry today, especially for mass market vehicles.
In Q3, we won an Android based infotainment system business with a global OEM for their vehicles in South America, which will go into production in 2025.
This one's display capabilities are well recognized in the industry with a leading optical bonding and glass cover lens technologies.
The third lien highlighted on this page is a 25 inch multi display module and a separate pinpoint two five inch bessinger display for a global OEM to launch on an all electric midsize SUV in the U S.
This is our first display then with this OEM and we are excited about the potential to grow with other vehicle models in the future.
We have previously discussed our intent to bring advanced automotive specific connected services to the market.
Im proud to announce that we have won our first business for in house developed all go at store.
At a large OEM in India.
Out of White label, App store will be hosted and run by the car manufacturer to bring downloadable apps to their vehicles in the field.
In addition, we also won our first customer for OTT services with the two Wheeler OEM in the quarter.
We believe that the timing is right for offering connected services in automotive and we're excited about its potential.
Turning to page six.
Car manufacturers are responding to consumers' increasing expectations of digital and connected experiences in the cockpit and are increasingly equipping new cars with built in connectivity to the internet.
Digitalization of the cockpit has led to the exploration of the connected car trend with vehicles across all price segments offering connected experiences in the cockpit.
In addition to Internet connectivity consumers expect the costs to include downloadable apps like they get with their smartphones and tablets.
Like the closed infotainment systems of the past the transition to Android based infotainment opens the possibility of bringing third party apps into the vehicle cockpit.
Visteon has been at the forefront of the digitalization trend and is also the leading supplier of Android based infotainment systems.
It was logical that we would take the next step and offer connected services that leverages, our in vehicle expertise and close the gap between mobile devices and in car infotainment for apps and content.
Our all go App store is a white label software as a service offering that enables car Oems to provide a full fledged app store experience, we'd get in vehicle infotainment systems.
That continuously growing the ecosystem of supported apps on the App store and also offer value added testing and lifecycle management services to the car Oems.
Our analytics dashboard and deployment portal can be used by Oems to deploy and manage apps that are offered on the app store.
We also offer additional cloud services on the <unk> platform that are addressing critical needs of Oems.
We offer an over the air service that enables Oems to run full software update campaigns across that entire vehicle fleet in the field.
Trips and management service enables consumers to opt in or out of services such as premium content for navigation maps.
Services are offered standalone or bundle with the App store.
In addition, we're developing vehicle analytics and remote commenced services to provide seamless access to critical vehicle health and diagnostics information from consumer smartphones.
Our near term objective is to reduce friction for Oems to adopt and deploy these services widely in their vehicles.
Therefore, while the initial revenue contribution from the August services will be minimal the long term opportunity is substantial.
Our two connected services wins in Q3 demonstrate the revenue opportunities with our connected services.
Shifted from our traditional model.
We believe that our significant cross selling opportunities both to serve our existing infotainment as smart core customers and to use our services platform to establish relationships with new customers.
We have a healthy pipeline of additional opportunities for this cloud services that we are currently engaged on and hope to report more progress in future quarters.
Turning to page seven.
This page shows our sales and revenue performance year to date and the outlook for the remainder of the year.
Entered the year for the industry being supply constrained due to the lower vehicle production in prior years.
With semiconductor supply improving and growing macroeconomic concerns.
Dissipated vehicle production at customers to moderate due to slowing demand during the second half of 2023, which is happening.
The transition from ice to EV is also offering more slowly for global Oems than they had anticipated.
Despite these challenges <unk> product sales have increased sequentially each quarter this year.
The company's strong product portfolio for the digital cockpit has enabled us to take advantage of the digitalization trend a sweeping across the industry.
The company has performed very well operationally launching a high number of products on vehicle models that are driving our revenue growth.
<unk> growth accelerated in the third quarter, despite the challenging customer and vehicle mix environment.
On the other hand sales of our BMS products have come in below our expectations due to the challenges faced by global Oems in ramping up electric vehicle production.
Looking ahead to the fourth quarter, our performance will be driven by similar factors that drove our third quarter results.
Ramp up of recently launched products will drive robust growth over market, even with the slower ramp in BMS sales.
We anticipate semiconductor supply to continue to improve with fewer critical parts, which will also reduce our open market purchases and the corresponding revenue.
China will remain a challenge for global Oems as they will struggle to maintain their market share against domestic competitors, especially in electric vehicle segment.
Lastly, the UAW strike at our customers' plants will create greater impact to our sales in Q4 than what we experienced in the third quarter.
We anticipate that our fourth quarter product sales will grow sequentially as compared to the third quarter. Despite the headwinds are.
Our full year sales, including recoveries are expected to come slightly below the midpoint of our previous guidance range due primarily to lower recoveries and Vms sales.
However, we anticipate our full year adjusted EBITDA will likely be slightly higher in the earlier mid point due to our strong operational performance through the first three quarters, which we expect to continue into the fourth quarter.
Turning to page eight.
In summary, the company performed very well to achieve another quarter of strong sales growth and position us well to meet our full year profitability targets.
We delivered record sales with strong growth relative to our customers' vehicle production continuing the trend of our performance for the past few years.
The team continued to execute on our commercial and operational plans, which resulted in our strong adjusted EBITDA margin of 12, 6%.
We continue to build momentum by launching our products on 33 vehicle models and winning $1 8 billion in new business in the quarter.
Finally, we are updating our full year guidance for revenue and adjusted EBITDA to reflect the strong performance year to date and the current outlook for customer demand now.
Now I will turn the presentation over to Jerome.
Thank you Sachin and good morning, everyone.
Visteon posted a solid set of financial results in Q3.
Illustrating another quarter of commercial and operational discipline.
We continue to build momentum with our sales growth margin expansion and cash flow generation.
Q3 sales were slightly over $1 billion and when excluding the impact of supply chain recoveries grew 9% compared to prior year.
This strong performance was supported by the ongoing demand, we see for digital clusters cockpit domain controllers and BMS programs combined with the benefit of recently launched programs.
While the UAW strike as added significant uncertainty to the automotive market in North America since mid September the impact was immaterial on our third quarter performance.
Semiconductor supply has continued to improve and as a result, our reliance on open market purchases are significantly reduced year over year.
However, we continue to see elevated prices from our traditional tier two suppliers.
In the third quarter, we shared approximately $17 million of these higher costs with our customers we.
We are optimistic that the semiconductor market will continue to improve in the coming quarters and expect that the need to pass through these costs will decline over time.
Adjusted EBITDA was $128 million for the quarter, an improvement of $33 million versus prior year.
Adjusted EBITDA benefited from higher base sales improved operational efficiencies lower engineering spending as well as the timing of several favorable commercial items.
This was partially offset by an increase in SG&A expenses.
Our adjusted EBITDA margin was 12, 6%, but adjusting for some of the positive commercial items in the quarter as well as for a more normalized engineering spend all run rate was closer to 11%.
Adjusted free cash flow was $98 million in the quarter.
Fitting from a strong EBITDA and a reduction in working capital.
We ended the third quarter with a net cash position of $144 million, while being able to execute $46 million of share repurchases in the quarter.
Our total share repurchases have been $76 million since we launched the program earlier this year.
Overall, we delivered a strong performance in the third quarter.
More importantly, we continued to build momentum and make progress towards our medium term targets turning to page 11.
Sales were $1 billion and $14 million relatively flat compared to prior year when.
When excluding customer recoveries base sales were $945 million, an increase of 9% compared to prior year.
This increase in base sales was driven primarily by growth of our markets as visteon customer production was fairly flat in the quarter.
Our growth over market was largely driven by the ongoing demand of our digital cockpit products recent product launches and increased BMS demands.
Customer recoveries, which are illustrated in the dotted boxes declined year over year by 55% to approximately $17 million driven mostly by a decrease in open market purchases and the corresponding recoveries from our customers.
Open market purchases were minimal in the third quarter and we expect this trend to continue in the fourth quarter.
Recoveries related to higher costs from our traditional tier two suppliers are expected to remain stable in the fourth quarter.
As a reminder, recoveries although bucket. It is pricing are pass through in nature, increasing sales neutral for adjusted EBITDA, but diluted margin percentages.
Adjusted EBITDA was $128 million for the quarter versus 95 million competitive prior year, an increase of 35% year over year.
Primary improvement in adjusted EBITDA was due to higher base sales improved operational efficiencies and several favorable commercial items, we negotiated in the quarter.
Net engineering declined $4 million year over year due to the timing of specific projects. This was offset by adjusted SG&A, which increased $4 million year over year, primarily due to personal costs related to investments in our team to support our future growth turning to page 12.
We maintain one of the strongest balance sheets in the industry.
Our balance sheet supports our growth and provides the flexibility needed to pursue our capital allocation priorities. We ended the quarter with total cash of $485 million and a net cash position of $144 million.
In the third quarter, we repurchased shares for $46 million at an average price of $137 per share.
This brings our year to date share repurchases to $76 million.
We will remain opportunistic in future share repurchases, which will depend on several factors, including our free cash flow generation and industry dynamics.
We generated $93 million of adjusted free cash flow through the first nine months.
This is a $133 million improvement as compared to the first nine months of the prior year, primarily due to the higher adjusted EBITDA and lower working capital build partially offset by higher cash taxes and higher capital expenditures.
As anticipated the built in trade and other working capital from the first half of 2023 was partially reversed in the third quarter.
Cash taxes were higher than prior year due to cash payments related to increasing profitability in some jurisdictions.
Interest payments remained low and primarily relate to our term loan that matures in 2027.
We have now repaid approximately $8 million year to date as a result of our quarterly amortization payments.
With modest amortization payments will continue on a quarterly basis through the maturity of the facility.
Capex was $82 million in the first nine months, we expect capex to increase in the fourth quarter, reflecting seasonality and our ongoing investments in manufacturing and electrification. We continue to expect capex of around $113 million for the full year.
Turning to page 13.
In light of our strong performance and the various factors impacting the industry. We are updating our guidance for sales we are tightening our guidance range to $3 billion $950 million to $4 billion and $25 million.
The midpoint of just under 4 billion represents a strong 14% year over year growth in base sales for the full year. Our underlying performance is expected to remain strong in the fourth quarter with continued growth of a market driven by ongoing product launches and an increase in our BMS sales, although lower than originally anticipated.
As Hudson mentioned earlier, there are several emerging headwinds that are expected to weigh on our fourth quarter sales, including the customer mix headwinds in China weakening demand from our European customers and the impact of the UAW strike.
Detroit customers I've, only recently reduced their orders due to the UAW strike actions in our guidance. We have assumed that the strike will continue at yesterday's levels through Thanksgiving, which has an estimated impact on our sales of approximately $6 million to $7 million per week.
Our guidance ranges do not incorporate further escalation of the strike either in duration or in the number of OEM plants being impacted for reference our weekly revenue from the Detroit three is $20 million to $25 million per week.
Tightening our adjusted EBITDA range upwards to $415 million to $445 million.
This is primarily from the momentum our strong underlying operational performance. However, above average decrementals on lost sales as a result of the UAW strike are expected to be a headwind for the fourth quarter.
For SG&A and net engineering, we continue to expect the second half of the year will be roughly flat with the first half in dollar terms.
We are maintaining our adjusted free cash flow range of $115 million to $165 million, which considers our assumption of the current adjusted EBITDA range, a modest use of working capital and higher Capex spending in the fourth quarter turning to page 14.
Visteon remains a compelling long term investment opportunity, we have positioned the company for top line growth margin expansion and free cash flow generation.
We will continue to return cash to shareholders, while maintaining a strong balance sheet, which provides significant flexibility.
We have an exciting growth profile and have demonstrated a strong focus on operational and commercial discipline to deliver huge growth. Thank you for your time today I would like now to open the call for your questions.
At this time.
I would like to ask an audio question. Please press Star then the number one on your telephone keypad again that is star and the number one.
Pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Luke Young with Baird. Your line is open.
Good morning, Thanks for taking the questions I guess I'll take the obvious topic to start with just the UAW strike and I'm just curious beyond the impacts to sales and operation is there a downside risks do you see any silver linings to this strike in terms of I guess I'm thinking in a tight supply chain environment potentially reallocating chip.
Maybe building safety stock continuing to drive down the open market purchases things like that.
Thanks.
I look good.
Good morning, yes.
And we are looking at all opportunities not just the UAW strike too.
<unk> performance in the supply chain, just maybe take a step back.
But semiconductor suppliers, although supply has gradually improved all throughout the year.
It has been.
Good thing and that has lowered.
<unk>.
Base still.
Still a few chips that are critical.
And we're watching them very carefully.
Generally I would say the investments in capacity and efficiency of Fabs that we have discussed previously.
In terms of supply.
Demand from automotive is not down much. Unlike some of the sectors. So while we have maybe taken some some benefit from that.
Lack of demand.
Other sectors.
I'd say that we still have a few chips that we need to work on that.
Trying to build a level of safety stock in any reduction in demand, whether it's through the strike or any other.
Factor would help in terms of building up.
The buffer so that service stand.
Okay.
Thank you for that and then my second question a bigger picture question session and I would just be in terms of the customer reaction to the first power electronics win that you announced last quarter. Just curious if you have a better understanding of this <unk> opportunity in power electronics, and just general position in the market.
I guess my impression is that that part of the market is still somewhat immature, but I would think to go out there now with an actual award in hand that that would be.
Pretty meaningful factor. Thank you.
And off the market as being in nature, I think is very apt and <unk> support.
I hear when I go out and talk to customers about power electronics now just to set some context. The industry is going through a shift from 400 volt architectures to $800 and thats, creating new requirements for auto electronics, which are significant and have caused a lot of challenges for Oems.
All these challenges existed even with the 400 volt architectures in terms of auto electronics, and specifically, we're talking about products like high voltage junction box DC to DC converters onboard Chargers, but when you go up to 800 wards requirements to get that much more difficult and especially in terms of efficiency.
Volume and very importantly, thermal management.
And since we are addressing many of these concerns there is a lot of interest at Oems and our solutions. So the way I would characterize this as yes. It is this win that we announced last quarter has put us on the map. It has made us the symptoms.
Supplier.
The systems in the industry.
It has generated a lot of discussions and interest at Oems.
I feel like we will still need a couple more quarters before we can fully.
I understand the point.
Potentially put us in this particular space, we remain very optimistic.
Thank you for that I'll leave it there.
Thank you.
Your next question comes from the line of Dan Levy with Barclays.
Your line is open.
Hi.
Good morning, Thank you.
I'm wondering.
If you could maybe just give us a bit of a bridge from <unk> to <unk> I.
I appreciate that.
Part of the decline is kind of relate to the non repeat of some of the commercial items.
<unk> had some strike, but I'm wondering if you could also just sensitize for us.
Good.
The strike just ended last night for your largest customer within the D. Three alright.
Yes sure.
Sure Dan Good morning.
So maybe let's go back to Q3 for a moment.
Very pleased with how the quarter developed growth over market was 9% of our sales grew as well by 9% in a flat.
Customer environment production for us.
Our EBITDA run rate when you normalize for some of the timing items that we had was close to 11%. So it does two things first it confirms the good run rate that we had indicated we would have in Q3 at the end of Q2 and then it allows us to raise the midpoint of our EBITDA guide.
<unk>, while absorbing some level of strikes so talking about Q4 and.
Looking at Q4 versus Q3 on the EBITDA side, we are still seeing.
Some benefits from extra volumes, even though we've got.
Some impact of strike baked into our mid points.
And we won't see obviously the.
One time items that I've called out in my prepared remarks, which are impacting.
Our.
Q3 results by about 100 basis points and then what we'll have in Q4 is a bit more engineering costs than we had in Q3.
<unk> had a fairly low level off.
Cost in Q3 in engineering, largely because of again timing and we will see some ramp up of these costs in Q4, so overall.
Still a very good quarter will be closer to 11%.
Overall in Q4 in terms of EBITDA.
As far as the strike is concerned.
We've been watching obviously, the news and the announcements from yesterday.
May change the dynamic.
<unk> obviously.
We still are exposed obviously two IGN.
Ford.
And we will have as well to see how the ramp up of some of the <unk>.
Ford and GM or Ford plants.
<unk>.
We are a.
Yes.
Either on the office front that will be straightforward and without any hiccup so visit.
This is something we're watching very closely and.
And we'll take it from there from now.
Okay.
Thank you.
You said weakly revenue, 20% to $25 million of that.
As for the <unk> three what percentage of that is.
Presumably the majority of the award.
It's a little bit more tilted towards Ford, but it's.
It's Jimmy Stela.
Really large impact for us I think one other aspect to consider is the fact that we are already pretty much at the end of October and we've had already more than a month of strike impacting orders for the month of October. So we should take that into account as well as we think about the strike. There is already some level of impact that has been.
Going through our numbers.
Okay, great. Thank you.
As a follow up wanted to ask about obviously the.
Slow down or the reduced.
Excitement about evs that were seeing probably in the market and maybe you could just give us a sense of how we should think about the BNS piece of your backlog in light of.
Slowdown the D.
I think we've generally seen Oems reserved some of there.
Faster more advanced content for EV platforms, I know youre really ice agnostic outside of DNS.
Oems are slowing down the pace of some of these launches how does that impact broader uptake of your.
Content, which has generally been reserved for.
The more high profile launches.
Yes look let me take that as such and so I would say that in general high content is not just specific to <unk> you are right that is.
More or higher content, especially digital content.
And it was across the board what we have seen.
This has happened in Q3, and we expect that to continue into Q4 as well.
Our customers have had some challenges in the production and sales of Evs.
Yes.
Dampened, our digital cluster sales by a little bit.
Although as I mentioned in my prepared remarks, two clusters, so growing still very well.
5% year over year, So that's still pretty strong cluster volume is pretty large and we can absorb.
Impact of.
The slowdown for all coming from Evs now on the BMS front again as I mentioned earlier, our BMS sales continued to grow.
For over a quarter and the ramp up.
We will continue in Q4 and into subsequent quarters.
And now and next year, we have additional launches as well.
And at the same time in terms of order estimates, we don't necessarily dictate.
Customer data base value. So we have had some level of conservatism in our estimates.
We expect to continue to grow quarter over quarter in terms of where we are at I expect that our exit rate this year in Q4 to.
To be where we thought we would be at the beginning of the year. So yes. It has taken a little bit longer for us to it.
It has still grown pretty well from our estimation.
And.
Earlier estimates of about 5% revenue contribution from BMS. This year will be lower than that but we expect to be able to catch up next year, but we will wait until the end of the year to fully understand.
Customers' production plans.
The BMS contribution next year.
Great. Thank you that's helpful.
Thank you.
Your next question comes from the line of Joe Spak with UBS. Your line is open.
Thanks, Ron.
I guess just to maybe follow.
Up on on some of that in my comments that commentary.
I know Sachin last last quarter, you sort of really tried to.
Comps on concerns about the longer term sort of.
LTM and EV trajectory in saying that you didn't sort of baked in what your customers did.
Or do you think we're sort of a little bit closer now to what they're saying and and I guess, what I wanted to understand from you is.
Clearly when you bid on the business you assumed.
Certain volumes to be able to hit your return profiles like if those arent met what type of recourse do you have with the customers.
Right.
At this stage or what I would say is that.
We believe that the <unk>.
Ramp up that I talked about will continue and our customers as GM also in particular mentioned.
Not so much demand limited themselves as they are supply constrained.
And as they address some of the challenges they have in the module assembly and manufacturing of the sales, we expect that the demand to come up and the ramp up to two really okay.
Get into a level, where we would be.
I would say pretty okay with it so to me it really depends on solve the additional launches not just for GM is doing but some of the additional launches that we have next year.
We always have in the business this challenge of matching.
Capacity to demand.
Okay, well I'll go ahead and invest in capacity now.
Always also apply our own judgment in terms of.
Leave that capacity would actually come online. So we'll have to see how next year develops it's too early to say, whether we have to have any other discussion related to unabsorbed capacity.
Certainly don't.
I hope that that would be the case, but we will have to see how it develops.
Okay, and then if I can sachin.
One other sort of big picture question like last quarter, you sort of talked about.
The growth Youre seeing in China, and how how are you.
Maybe a little bit underexposed to some of the faster growing Oems and some of the efforts you are you undertaking to sort of try to get better position there.
One thing that's become clear, though in China is great like the velocity of the models and sort of what.
In terms of coming to market and even sort of whats popular in the market is just much much quicker and it seems like it's not sort of this typical what we're used to in the developed world or in the Western World up seven year programs like things are just.
Coming up quicker than maybe burn bright, but then fall harder and if that's true like I'm curious like how.
How do we how does it kind of like Visteon sort of manage going after that that business because it seems like it's a little bit harder to underwrite.
That's a great question, Joe and I think this is something that we all need to understand much better but what you have described is effectively a result of a market like China. This large it's also a very young market.
Average age of the customer of our systems in China is under 35 years in the more developed parts of the world it's much more than that.
And therefore, the systems that are being designed by our customers in China look very different for China, and the look forward for the rest of the world.
And just because they are more advanced in China. It doesn't mean that they would have the same appeal outside of China, whether demographics is very different so we have gone as an industry from designing products for the rest of the world outside of China. The more developed markets first and then bringing them to China.
We have to.
It had to change our perspective and look at China as even a more advanced market for digitalization than the rest of the world now how have we done in that context. So if you look at where we were at in 2018. When this trend really started to slowly increase.
Increase and then picked up momentum.
About 15% of our revenues in 2018 came from domestic China Oems.
Today, if you look at this year, we will probably exit this year at about 40% of our revenues coming from that same chatter on domestic Oems not the global Oems and we've added customers like Genie and GMC and others that debt.
Some of the Oems that are on the vanguard of that trend. So we are doing exactly what we needed to do to make sure that we don't get trapped with older products that are not as effective in that market, but that doesn't necessarily mean that the rest of the world will follow exactly their lead so they have to have this approach.
Which really does challenge.
Development capabilities, but our platform approach that we have been talking about now for several years is really helping us.
Develop this somewhat different solutions that are differentiated but at the end of the day are still using fundamentally the same technologies, especially when it comes to software.
So I think we have done well in terms of addressing this changing dynamic and just as happened very quickly.
That's where we are.
Seeing the proof off in the numbers China. This year, we will continue to grow for us despite.
The lower domestic production that we talked about earlier in the prepared remarks, and we expect to see continued growth going forward.
Thanks, Matt.
Thank you.
Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.
Yes. Good morning, Thanks, very much for taking the question.
Better understand your comments around some of the macroeconomic trends in particular in Europe, you talked 90 days ago about seeing some slowing there and it sounds like that's continued or maybe even picked up a bit and you can help us better understand the breadth and magnitude of the slower trends you may be seen in Europe, and how that's progressed.
Okay. So yes, so let's talk about how we are seeing the market develop when we talk about Europe in particular.
We entered this year with the market essentially being a supply constrained market and they had on account of the pent up demand very strong order book.
That supported high levels of production in Q1, and Q2 of this year.
And we had anticipated that this change from a fundamentally a supply constraint to being more demand constrained what happened during this year and we started to see that in Q3. So if you look at the third quarter of.
Vehicle production at our customers is reflecting the slowdown in the.
You see that going forward into Q4 as well.
So that.
The order intakes the consumers.
Others into the Oems and also the year had been lower than.
What the industry.
Anticipated at the beginning of the year. So that's what is causing the slowdown which we expect to have some effect, which was factored into our guidance for Q4, and we'll have to wait and see how next year developed from this perspective, but that's what we're seeing with respect to Europe, We also talked about China and the.
Domestic market did being a little bit weaker we saw that in Q3, and we expect that we will also continue into Q4.
And then does the other dynamic that we have broadly discussed here, which is the slowdown of.
Our EV related production and sales. So those are the factors that I would think.
The macro factors that we need to consider both for Q4 and then for next year as we start to think about next year and I would add mark for this year, putting things into context and despite these headwinds we are seeing our sales growth by about 40% to 15% for the full year. Despite these.
These headwinds so.
Still a very healthy growth of our markets and definitely growth year over year in terms of our absolute sales.
Thank you for that context, and following up on some of the prior questions related to the intermediate to longer term outlook and some of the Oems are recalibrating their product launch.
Schedules in mix tied to Evs.
Confirming there is there is no change to your 2026 targets that you outlined at the Investor day for about $5 5 billion of.
Revenue in about 13, 5% adjusted EBITDA margin.
Yeah at this stage, we believe we are.
We needed to be I mean, if you think about where we are at.
At the midpoint of our guidance in terms of base sales for this year you would have added approximately $450 million in new sales this year.
And.
That's pretty much what we need on the annual basis, all the way out to 'twenty to 'twenty six so although.
Sales has moderated a bit on account of the factors that we mentioned this year is still pretty much on track as to where we needed to be.
And I would just add on the EBITDA side again.
Run rate that we have at the end of Q3 and what we're protecting for Q4 indicates as well that we.
We are very much on strike and we'll be able to scale that up as we go with additional volumes.
Thank you.
Your next question comes from the line of John Babcock with Bank of America. Your line is open.
Hey, good morning, and thanks for taking my questions.
I guess, just first of wet shave, you've obviously done well in terms of business trends this year and seem to be on pace.
At least achieve if not exceed your target and.
Recognizing that those funds can be lumpy and uncertain. Just generally do you expect you can keep it similarly strong pace in 2024 based on the discussions you've had throughout.
The last couple of months months and quarters.
Yeah. So that's actually a good question and I would say that we've done really well.
All of them grow our product portfolio over the last couple of years.
Both on the digitalization front, but also for electrification so that puts us in a good position to address some of the biggest challenges the Oems are facing and as we have shown this year. This should translate into higher levels of new business wins.
Which we think should be sustainable, but we'll still have to see again.
This dynamic.
Dynamics of the Lumpiness of some of the awards that Ken.
Straddled the quarter sort of be not appropriate to be too precise about what we think we can achieve but we have previously indicated this year, we would exceed $7 billion. We believe we should be in a position to do that but more importantly, we believe this is a sustainable performance in terms of having a higher level.
New business wins.
One thing I do want to mention because this could be also the next question that people may have many of the Vince this year.
I was going to launch in either second half of 2025 or 2026, so the contribution to <unk> 26.
Our target certainly will be there and thats of course factored into us.
Our assumptions for the midterm target, but more importantly, it puts us in a great position to continue to grow in the long term.
Hi, guys. Thanks for that and then just as a follow on I was just wondering I mean based on the business wins that you've had obviously they generally tend to pertain to.
New models and I was just wondering if youre getting a sense from Oems as to how digital content is changing on some of those next product launches.
That would actually be helpful.
Yeah, Yeah. So I think this is the good.
Trend that we have been talking about for some time. So what we are seeing is that the displays in particular are really getting much bigger and also they are introducing a number so passenger side displays are becoming more and more the norm and mid to upper end of the market and when it's at the mass market the mid <unk>.
<unk> segment.
Still seeing the growth of displays from smaller 700, eighteen's displaced or 10 and 12 inch displays.
Display is getting larger is also pulling a lot of additional content vote.
<unk> as well as connected content so the shift towards.
Connected services approach.
Visteon I think is also very timely because we believe that that's going to generate.
A lot of opportunities for us not only for incremental revenue and margin contribution directly from the connected services themselves, but also in terms of how they meet.
Embedded in vehicle products more competitive we believe we will be one of the few suppliers with an end to end capability from the cloud all the way into the car with connected services and the in vehicle content.
I do not believe will be matched by too many other competitors.
Okay, Great and then just last question before I turn it over.
Is it possible to get some sense as to the impact of the strike so far for Visteon, recognizing it's relatively limited <unk> would be great, but anything you can provide there would be useful.
Yes, it's Sean.
<unk> been impacted so far obviously with the with October orders coming down and I would say that they represented about half of what we've assumed.
In our.
Guidance.
So the assumption in guidance is about 25% to $30 million and half of that.
It's already baked into October.
Okay, and Thats <unk> alright.
Okay.
Yes.
Alright, perfect. Thank you.
Thank you.
Your next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is open.
Alright. Thank you so much I was hoping to follow up on.
Some of your customers in Germany, more broadly by multiple automakers. So.
And just try and quantify for us how much is assumed in terms of the EMS revenues for <unk>.
For this year and Youre in your current guidance and then.
What sort of effect.
Growth rates, if you assume I think you have a $600 million.
Guidance or outlook for 2026 in terms of revenues.
What can you sort of it could be at risk based on some of the leaders.
Yes volume progression.
Hi, Emmanuel I think it would be too premature to really talk about our midterm guidance and what could be at risk I think this challenges that our customers are facing specifically the one customer that.
<unk> talked about.
<unk>.
The slower ramp of electric vehicles, we believe this on account of some production challenges that.
We are quite confident there will be able to overcome so.
Yes. It has resulted in a slowdown this year, which was factored into our guidance, but we're not reading into this anything beyond that.
As I mentioned, we have always been conservative in terms of how we have assumed.
BMS volumes in particular, so we'll have to again look at it more closely.
Not at a point today to be able to give you that insight we will have to get more data from our customers about next year and the outer years, but we believe that is still sufficient headroom.
Fair to assume that we should be in a better position than what might be implied by what youre getting about the slowdown in evs.
Okay.
So I guess just.
Following up on this and just asking this a little bit differently.
How much of your growth of the market over the next few years is assumed to be from from BMS and can you remind us the timing of your next launches in Dms.
Yes, so again I think the growth of a market that we look at it as a combination of many things and we can't necessarily parse out exactly impulses coming from each one so.
So I would like to just again.
Context to this we need a growth of a market of about.
A high single digit to low double digit.
In terms of being able to achieve our midterm guidance and we have assumed in that midterm guidance by 2026 electrification revenues to be about $600 million.
So that's the first framework now we believe that where we stand today and the electrification plans for all of our customers. We believe we still have a path to get to that on account of us being conservative in our estimates for the volumes that we had anticipated if you go back to our analyst day early.
During the year.
We will remind everyone that we were being challenged as to why we were being conservative at the time with our estimates for electrification and BMS in particular.
This is the reason why and therefore I believe we are today.
<unk> shipped and what might a theater.
This value when you hear about this.
Messages coming from Oems.
Whenever the next launches.
Early next year.
Thank you.
Your next question comes from the line of Jim <unk> with BNP Paribas. Your line is open.
Hi, everyone.
Just on the favorable timing of recoveries in the third quarter totaling $15 million.
It's entirely attributable to a pull forward from the fourth quarter or was there any unexpected retroactive retroactive recovery achieved in the quarter.
Yes so.
So there are two items in this 150 basis points, you have about 100 basis points, which is related to commercial items, which are essentially commercial items that were settled in Q3 when costs were incurred in prior periods. So it's really neutral on a year to date basis and.
As you do a walk from Q3 to Q4 will kind of reverse out.
And then the 50 basis points remaining relates to.
The fact that our engineering spend was lower in Q3, largely because of project cost that.
Had a different timing and thats going to impact Q4. So that's one of the reason why we have increased our engineering spend in Q4, because there is a move of expenses between Q3 and Q4.
Okay, all right that's clear and then.
Just to confirm the strike affected volume.
In your guidance applies a near 30% decremental margin is that right just given the weekly ranges for revenue and EBITDA that we provided and then I apologize if I missed this but based on the $20 million to $25 million per week strike impact embedded in the guide what would forward represent within that weekly revenue range. Thanks.
So maybe first on the Decrementals, we think there'll be a little bit higher than our average decrementals.
One of the reason is that there may be some.
Stop and go.
<unk> expenses as everybody ramps up when strikes and so that's one of the reasons why.
Decrementals will be will be higher and then 40 is a little bit more heavy than GM, but Jimmy steal a fairly large portion of our business here in the U S.
And then just within the.
The weekly range.
Or was that without your answer was the heavier weighting to forward on the Decrementals.
Heavier support indeed.
Yes heavier to Fort Indeed.
Alright. Thanks.
Thank you.
This concludes our earnings call for the third quarter 2023 results. Thank you everyone for participating in today's call and your ongoing interest in Visteon.
Thank you for attending you may now disconnect.
Please wait the conference will begin shortly.
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